L T Overseas Ltd.

Background:

• LT Overseas Ltd. (LT Overseas) was incorporated as a private limited company in the year 1990. Subsequently in the year 1994, it converted to a public limited company.
• The company is primarily into the business milling, processing and marketing of branded & non-branded basmati rice. It also into manufacturing of rice food products. The company owns 19 brands including established brand like ‘Daawat and Heritage’. These brands are registered in 40 countries.
• Products of the company are sold both in domestic and overseas markets. In international market, the company has presence in UK, Canada, UK and other European Union. Top three foreign destinations are Saudi Arabia, USA and Spain. In domestic market the company has more than 100 distributors across the country.
• The company has a capacity to process 30.5 tonnes per hour (TPH) of paddy. It has its own processing facility in the state of Haryana. It has 74 mandis for procurement of basmati paddy.

Object of the issue:

• Expansion, Automation and Modernization at Sonepat, Haryana.
1. To set up a new Parboiled rice (sella) processing and milling capacity.
2. To set up a new milling line for producing value added rice.
3. To add balancing equipments and Automation of existing facility.
4. To set up Silos and Flat storage facility.
• Generating power for captive consumption.
• General Corporate Purposes.
• To meet the Public Issue Expenses.

Strength:

• Domestic sales have been in increasing trend since FY02. There is an increase in domestic sales of more than 64% in FY06 as against a total sales increase of 12.5%.
• Market share of branded basmati rice is 35% in comparison to 22%, 3 years back. EBITDA margins for unbranded exports are around 8% vis-à-vis around 16% for branded exports. Growth in domestic market for basmati is clearly visible as it is growing at 6% CAGR with branded basmati demand growing at 15% CAGR. Demand is set to rise with increase in number of consumers as well as the quantity consumed.
• LT Overseas is one of the top three players having a market share of 22% in domestic market. Large-scale operation of the company provides economics of scales and helps competitive pricing of its products.

Weakness:

• LT Overseas has not able to penetrate in overseas market. Export sales has been in decreasing trend since FY04. In FY06 Export sales were Rs.1,97million where as in FY04 the same was Rs.2,62 million.
• LT Overseas has contingent liabilities to the tune of Rs. 442.97 million. In the event of crystallization of any of the contingent liabilities, bottom line of the company will have an adverse effect.
• Although, net profit as a percentage of sales has been in increasing trend, still the margin is around 2.75%.

Valuations:

• RoNW has increased from 10.73% in FY05 to20.27% in FY06. Book Value per share during the same period has increased from Rs.67 to Rs.76.
• EBIDTA for the three-month ended June 30, 2006 was Rs.87.91 million. EBIDTA as a percentage of income during this period was 8%. In FY 2006, EBIDTA increased to Rs.319 million in FY06 from Rs.268 million in FY 05, showing an increase of 19%. As a percentage to total income it has increased from 7.43% to 7.91% during the said period.
• Post Issue EPS based on FY06 result works out to be Rs.5. At a price band of Rs.50 to Rs.56, P/E multiple is 10x to 11x. Average Industry P/E is 11.60.